Tens of billions of dollars on the line as pro and college sports look to return, with or without fans
Talks about restarting sports may start and end with public health, but somebody is also in charge of talking about the economics of the coronavirus crisis. These are not short conversations.
At some point, the conversations turn to money. Talks about restarting sports may start with public health, and maybe finish there. In the middle, somewhere in all these conversations, somebody is in charge of talking about the economics of the coronavirus crisis.
These are not short conversations.
All over the landscape, the professional sports and big-time college sports, the dollar figures on the line are into the billions. Not just overall, most separate sectors. The NFL has billions of dollars on the line. So does Major League Baseball. Even the Power 5 college leagues — billions. Combine it all, you get deep into the tens of billions.
As the NBA looks to resume play in late July at Disney’s ESPN Wide World of Sports Complex in Florida, the dollar figures involved could depend on whether the league includes some regular-season play or cuts straight to the playoffs. Either way, the losses in revenues still could run into the many millions.
If Major League Baseball games aren’t played this year, team owners stand to lose nearly $4 billion, according to commissioner Rob Manfred. The players union, ever distrustful of ownership, has asked the league to produce evidence to support that claim.
Never mind the exact numbers. The disruption of the 2020 season, however long it persists, almost certainly will cause unprecedented economic damage from which MLB might need years to recover.
“Under the best of circumstances, the 2021 revenue that MLB generates is not going to be $10.5 billion like it was last year,” said Andrew Zimbalist, author and professor of economics at Smith College. “This year, obviously, it’s not going to be that. But even if they play a full season next year, it’s not going to be $10.5 billion. There’s going to be a lot of questions and uncertainty going forward about what’s going to happen, not only in 2021 but in subsequent seasons.”
According to published reports, NHL teams lose about $1.3 million for each regular-season home game not played — and more for playoff games that aren’t held.
The NHL seems intent on resuming the season with a 24-team format (without fans) that would have play-in games and would eventually have 16 teams in the Stanley Cup playoffs. That would help the league recoup some of its losses. The NHL stands to make as much as $500 million in TV revenue if the playoffs are held.
In other words, the NHL stands to lose as much as $500 million in TV revenue if the playoffs are not held.
College sports as an entity has just as much on the line. ESPN calculates as much as a $4 billion loss if the 2020 football season is canceled.
Many of these calculations need to be set up in various categories. What about games with no fans? What about shortened seasons with no fans? What about socially distanced fans in some states, no fans in others? All those questions come with price tags.
Should the NFL salary cap drop by roughly 30 percent next year? Marc Ganis, president of Sportscorp, Ltd., a prominent sports consulting firm, thinks that is one possible scenario, should the league have to play the 2020 season with no fans in the stands.
Observers have theorized that of the four major professional sports leagues, the NFL might suffer the least financial damage from playing a season without fans, given that most of the league’s money comes from national TV deals, and teams play only eight regular-season home games a year.
That doesn’t mean the loss of stadium revenues wouldn’t be a big deal for the league and for the Eagles, though. Forbes magazine, working off 2018 figures, recently estimated that the league would lose around $5.5 billion with no stadium revenues in 2020 — including tickets, concessions, sponsors, parking and team stores.
Ganis, who has worked with teams on such things as stadium projects, feels that $5.5 billion figure for loss of all stadium revenues this year might be “a little high.” He said local revenues tend to account for 25 to 27 percent of a team’s annual take, probably a little less than $4.5 billion a year.
So Ganis also feels Forbes’ estimate that the Eagles would be in line to lose $204 million is also a bit high. Still, even a little less than that is a lot, especially when you consider that Forbes pegged the Eagles’ operating revenue — their profit after expenses — at $150 million. Forbes has estimated the Eagles’ franchise value at $3.05 billion, but until Jeffrey Lurie sells the team, that number is largely theoretical; Lurie doesn’t have a vault with $3.05 billion in it that he can swim around in, a la Scrooge McDuck.
Cost of empty ballparks
How bad will it get for Major League Baseball this year? It’s impossible to say until MLB and the players agree on the particulars for what the season and salary structure will look like.
Start here, though: Manfred estimates that an average of 40% of teams’ revenues are gate-related — ticket sales, luxury suites, parking, concessions. Zimbalist believes it’s actually closer to 50% once sponsorship money is figured in.
That’s why the owners want to revise a March 26 agreement with the union that called for players to receive prorated salaries based on the number of games played. MLB contends that the agreement was contingent on fans being present; the union believes a deal is a deal and notes that the players would be risking their health by agreeing to play in the midst of a pandemic.
MLB has proposed a sliding scale that would give the lowest-paid players the highest percentage of their prorated 2020 salaries while requiring the highest-paid players to accept the most significant cuts. The union expressed strong disappointment over that plan.
This week is critical. An agreement likely would need to be reached within the next seven to 10 days to meet a projected resumption of spring training in mid-June and an early July start of the season.
“I consider myself to be a players’ guy, but just speaking as an economist, it just makes perfect sense that you wouldn’t stop the salary adjustments at 50% [based on playing half as many games],” Zimbalist said. “There’d be some further reduction based upon not having fans in the stands. That’s just straight economics. There’s no ideology there. I think the owners are putting forward totally reasonable ideas here.”
While the owners and players haggle over money — a terrible look given the worldwide economic hardship — the league has cut costs in other ways, namely reducing next month’s amateur draft from 40 rounds to five.
Some teams reportedly will initiate pay cuts or furloughs beginning June 1. In a May 8 letter to employees, Phillies managing partner John Middleton committed to keeping full-time staff through at least October.
‘There is going to be pressure’
Almost every variable comes with a dollar figure attached.
The trickle-down in college sports is enormous. If big-time football schools play a shorter schedule, that means less buy games, which means smaller-time schools that count on getting paid to show up will have less money they need for their own budgets. All this after overall school budgets already are getting slashed.
The two biggest variables are about students showing up on campus, since their tuition keeps the doors open at many schools. Say that happens, will there be sports in the fall? Will there be sports with fans? Limited fans? No fans?
“Even if it’s just the game and stadium revenues they lose, that’s a really significant part of these athletic budgets," said Joel Maxcy, a sports management professor at Drexel. “There is going to be pressure to get back if they can.”
Would the Power 5 even be the Power 5 without football? Would many of those massive advantages swing over to disadvantages? What if a few billion in revenues evaporates, with the expense side of the ledger not able to go down dollar-for-dollar with it?
“The coaches’ salaries and the capital investments … they’re on the hook for paying off the debt on those investments," Maxcy said, even if coaches and administrators take pay cuts.
Before the answers come in on a lot of these questions, the list of sports being dropped is growing. Furman baseball and men’s lacrosse, Cincinnati men’s soccer, Old Dominion wrestling. East Carolina dropped men’s and women’s tennis, and men’s and women’s swimming and diving. None of the local schools have announced a sport being dropped. Yet. No Power 5 schools have dropped one. Yet. Let’s wait and see what happens if football revenues are down in the fall.
You see some colleges start to drop sports and on the surface it doesn’t make sense, since many baseball and soccer and tennis players and track athletes pay full tuition or close to it.
“That’s really why they have those sports, to attract students," Maxcy said.
So why drop them? Maxcy explains that, too. If the tuition payments don’t hit the athletic budget, but the operating costs and coaching salaries of a sport are in that budget, then the athletic director has a problem when he’s told to cut his budget by a certain percentage.
“I think that’s what it is," Maxcy said. “Every department, what can you cut? What can we do?”
If a sport is due for a facility upgrade, that’s now a real problem. There is another problem, Maxcy points out, that is different in college sports than in the pros, where the leagues negotiate returns with their players. It’s one thing if college athletes test positive for the virus. But if there’s a serious health issue involving a college player — “somewhere, someone," Maxcy said — what happens then? He gave the example of the Maryland football player, Jordan McNair, who died of heatstroke in 2018 after participating in a workout. What happens if a player ends up on a ventilator?
“It would be the same sort of public relations problem," Maxcy said. “The question has to be answered: Why did this happen when there was no need to play football? I think that’s the issue they’re up against."
NFL ready to adapt
Ganis said he expects the NFL to respond to this crisis adroitly, as he feels it has so far, as witnessed by the way the league pulled off its virtual entry draft.
“The NFL has demonstrated that it can adapt very well … they have so far been spot-on in their ability to modify and keep everything moving forward,” he said.
The bright spot on the NFL horizon might be the upcoming negotiations for new TV contracts to replace the current deals expiring in 2022. As was demonstrated with the record-breaking draft ratings, a future that might entail less time spent milling about in public spaces is going to whet the public’s appetite for televised sports. Advertisers can look forward to very large audiences.
“There’s a combination of factors here that make the NFL even more important to the broadcasters than it was before. On the other side, there’s the issue of how financially strong some of the broadcasters will be,” Ganis said.
Even if there is a broadcasting partner who isn’t faring well overall, streaming services are expected to be part of the bidding this time around. Some observers expect the NFL’s TV rights fees to double.
Some NFL sponsors might be hurting, unable to afford commercial rates. But Ganis said TV sports has been in this place before, decades back, when once-omnipresent tobacco advertising was banned. Doom was predicted. Other sponsors emerged to fill the void. The prophets of doom didn’t foresee Microsoft or Apple, for example.
“Technology advertisers are massive now in the NFL. The competition for getting people to come to a platform or a shopping site is going to be tremendous,” with people more leery of going to stores and mingling, Ganis said. He noted that the online merchant Wayfair bought a Super Bowl ad this year.
Teams are suffering
The NHL could have played hardball with its players. Instead, it decided against it.
The NHL’s collective bargaining agreement permits teams to negotiate new salaries for players if the league “suspends, ceases or reduces operations” in-season because of a “state of war or other cause beyond the control” of the league or the teams.
But Bill Daly, the league’s deputy commissioner, told ESPN the NHL has advised clubs not to rely on that paragraph and to pay players.
Teams are suffering, however. If the NHL stands to make as much as $500 million in TV revenue if the playoffs are held without fans, expect those figures to be even larger for the NBA. Meanwhile, ESPN reported earlier in May that the NBA had reached an agreement with the National Basketball Players Association to extend until September the 60-day window that preserves the league’s right to terminate the collective bargaining agreement in the wake of the pandemic.
Maxcy at Drexel figures that if total revenue for the 2018-19 NBA season was $8 billion, and about $2.7 billion of that came from national television, it is not clear how much of that TV money would be gone. A billion or so in lost stadium revenue probably is a reasonable estimate, Maxcy said. “That’s still without accounting for payroll easing,” Maxcy said, noting that players gave up a portion or their salaries for every lost regular-season game.
Big losses in soccer, too
The finances of American soccer are notoriously secretive, but we’ve gotten some hints this spring about how much money teams are losing.
When the shutdown began in March, the Columbus Dispatch estimated that the Crew could lose around $900,000 per canceled game, including $400,000 from ticket revenue.
Obviously Philadelphia is a larger market than Columbus, but on the MLS landscape, it’s not so different. The Crew averaged 14,856 fans per game last year at 20,000-seat MAPFRE Stadium, and drew 17,473 for the one home contest they got in this year.
The Union averaged 17,111 fans per game last year at 18,500-seat Subaru Park, and didn’t get a home game before the season stopped.
It’s not a perfect comparison, but it’s closer than bigger teams like the Seattle Sounders and Atlanta United, both of which averaged more than 40,000 fans per game last year.
The Union haven’t imposed any layoffs or furloughs on their staff so far. They’ve also set up a relief fund for their game-day workers.
MLS teams do have some TV revenue in the bank, from deals with ESPN, Fox and Univision that pay a few million dollars a year. That isn’t the case in the NWSL, which just started deals with CBS and the streaming site Twitch. When the Chicago Red Stars unveiled their new jersey last month, owner Arnim Whisler said merchandise sales are the team’s only source of revenue right now.
NFL cap adjustment?
The NFL salary cap is pegged to the league’s gross revenues, so if revenues go down this year, the cap will have to follow. But maybe not to the tune of $60 million.
“The players association might suggest to have the loss covered over two years or three years, so that it’s less of a one-year impact,” Ganis said. “I don’t think anybody’s gotten to that point yet,” in thinking of possible scenarios.
A huge drop in the NFL cap would mean teams releasing prominent players — assuming those players and their agents don’t agree to contract modifications.
“You may have a lot of movement, a lot of players who are released to fit under the cap,” Ganis said. Those players wouldn’t necessarily find a robust market, given that the cap would drop for every team.
Whenever fans do return, Ganis expects changes to the stadium experience. If fans come back this year, maybe elderly fans, or those with comorbidities, most at risk in the pandemic, would be asked to stay home. Maybe from now on, fans will be ordering and paying for concessions via their phones, rather than standing together in lines and forcing the concession workers to handle cash.
Ganis mentioned one possible change to the stadium experience that frankly does not seem workable in Philadelphia. He noted that crowded bathrooms will be a concern, and that studies have shown “two beers equals one bathroom trip.” So Ganis thinks limiting beer sales could be a solution.
It seems more likely that Eagles fans will arrive in rubber boots, even when rain is not in the forecast.